Derivatives

Global investors start hoarding gold

Rajalakshmi Nirmal | Updated on January 20, 2018

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Indian demand is weak on expectations of an import duty cut



With a smart recovery in the US dollar, gold gave back some of its gains last week. From a high of $1,253/ounce on Wednesday, the metal dropped to close at $1,223/ounce, down 0.3 per cent.

However, the metal is still up a good 15 per cent for the year, thanks to the solid buying by gold ETFs. SPDR Gold Trust has recorded inflows of about 30 tonnes in the last one week, adding up to 120 tonnes since the beginning of the year.

But for weak demand in Asia, especially in India where expectations of an import duty cut in the Budget have tempered buying, the yellow metal could have seen an even stronger rally.

The gems and jewellery industry expects the import duty on gold to be cut from 10 per cent to 6 per cent. Gold prices in the physical market in India quoted at a discount of about $32/ounce to global prices. Gold ETFs in India continued to trade at a discount to NAV. Gold BeES, the largest gold-backed exchange traded fund in India, closed on NSE at ₹2635 while NAV was ₹2,780.8.

Buying in China’s physical gold market too has been weak. A data release last week showed that China’s gold imports via Hong Kong fell to a 17-month low in January. Prices were at a marginal $2/ounce premium, recovering from a discount in the previous week.What added muscle to the dollar last week was the upbeat US GDP data. Though US economic growth slowed in the fourth quarter, it was not as bad as expected.

After a 2 per cent growth in the third quarter, the growth for the fourth quarter came at 1 per cent. Previously, it was estimated to have increased only by 0.7 per cent. The US dollar index closed at 98.15 on Friday, up 1.6 per cent for the week.

Silver and platinum, too, ended in the red last week. Silver closed at $14.7/ounce, down 4 per cent and platinum finished at $914/ounce, down 2.7 per cent. The week ahead is expected to be event-packed. With the gold industry keeping its fingers crossed on import duty cuts in the Budget, investors globally, too, will have an eye on the developments in the Indian market. If import duty is cut, it will make gold prices in India cheaper to that extent and can revive demand to some extent, believe jewellery retailers.

Cues to watch

In the US, key data releases this week include- ISM Manufacturing Index on Tuesday, followed by jobless claims on Thursday and the report on the employment situation on Friday.

Non-farm payrolls are expected to rise by 1,90,000 in February and the unemployment rate is likely to hold at 4.9 per cent. Technical charts show that gold is trying to consolidate around $1,230 levels. If data releases next week are not supportive, gold may face trouble. Supports are at $1,200 and $1,190. However, an up-move may find resistance at $1,250 and then at $1,260.

Domestic market

MCX gold futures closed at ₹29,337, down 0.6 per cent. Rupee lost against the US dollar, but only marginally. The currency ended at 68.63 against the greenback, down from 68.47 in the previous week. MCX Silver closed at ₹36, 250 down 3.1 per cent, tracking international prices. This week, MCX gold futures may be very volatile as markets digest the outcomes from the Budget. The contract has a strong resistance around ₹30,000 levels. It needs to cross this resistance to make any significant gain. Supports are at ₹28,800 and ₹28,000. MCX Silver may also follow the trend in gold. Resistances are at ₹38,000 and ₹39,400. If the contract, however, continues to move south, it may face supports at ₹36,000 and ₹35,400.

Published on February 27, 2016

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